Car-buying Jargon Busted!

By Farzana Chaumoo

Car buying can be a daunting experience especially if you’re a first timer. So to help you, we break down the commonly used terms in car sales.

There are some common terms used on the sales side of the automobile industry that you will come across if you’re shopping for a car. We’ve listed below all the ones you need to know about.

Balloon Payment

A balloon payment is a large sum of money paid at the end of a contract term. With a balloon payment, a loan is only taken out for a portion of the total cost of the car and paid off monthly. At the end of the period the balance on the car is then due in one chunk.

An example of this would be: if you want to finance a car valued at R100 000 with a 10% balloon payment, then R90 000 will be split and paid over the agreed period, and the R10 000 balance will be paid at the end of the contract term.

Credit profile

A credit profile is a current outline of your debts and history of credit usage. Your profile will display all your current accounts, missed payments and total amount of money you owe. Banks will analyse this profile to determine whether you are a reliable lender.

Credit score

A credit score, also referred to as a credit rating, is something used by the banks only. The bank will rate you depending on your credit profile. If you have a good credit score then you are seen as a low risk to the bank.

To get a good credit score you would need to pay your accounts on time, keep as few accounts as possible, have existing assets and keep your finances stable.

If you often miss payments, don’t have a secure/stable job, owe a lot of money and is reliant on credit, then your credit score will be less-favourable. Find out where you can finance a car with bad credit.

Contract Term

A contract term refers to the period you choose to pay off your car/loan. The longer the period/term, the more interest you will also pay. The common terms for car loans are: 12 months, 24 months, 36 months, 48 months, 54 months, 60 months, and 72 months.

Deposit

A substantial sum of money paid as a first instalment. The balance is then payable later. When buying a car or financing a car, a deposit will help to lower your monthly instalment or reduce the total contract term.

Not sure whether a deposit is the best option for you? Read about pros and cons of buying a car without a deposit.  

F&I

F&I refers to Finance and Insurance. Many dealerships across the country have an internal F&I division that handles the calculation and paperwork involved with the sale of a vehicle. The finance division deals with all the major banks and negotiates credit for you, while the insurance division will assist you with getting the car insured.

If you’d like to learn more, here are a few articles to check out.

• Who is eligible for car finance?
• Car finance 101: key terms explained
• 3 ways to finance a car
• Everything you need to know about car insurance

FICA

FICA stands for the Financial Intelligence Centre Act. This law states that banks are required to fully establish the identity of lenders in order to avoid fraud situations. It was with the implementation of this Act that consumers now have to provide documentation such as proof of identity, proof of residence and others, when applying for credit.

Interest

Interest is an amount of money paid regularly at a specific rate for money that was loaned. All banks/vehicle financiers charge interest on loans. However, the interest rate charged for your loan depends on your credit profile and the current repo rate set by the South African Reserve Bank.

NCA

NCA refers to the National Credit Act. The National Credit Act is a law, instituted in 2007, that regulates how banks lend money to consumers. This law has been put in place to protect consumers from bad lending habits.